a16z Podcast | The Future Of Television

Market Structure & Disruption Barriers

• The US television market remains "brittle" due to strong incentives and power relationships among cable operators, channel owners, and content holders that resist alternative consumption models.
• Disrupting the US TV market requires capital investment comparable to building a nationwide cellular network, estimated at $10–$30 billion.
• Benedict Davins identifies three independent, unresolved variables in the shift: content control/availability, device form factor (touch, tablet, screen), and consumer willingness to switch from scheduled to on-demand viewing.
• The industry operates on an "L-shaped" demand curve where hits concentrate the vast majority of viewership, similar to the BBC iPlayer top-soap-opera consumption pattern.

Netflix's Strategic Evolution

• More than 60% of streaming hours on Netflix now originate from major game consoles (PS3, Xbox, Wii) rather than native TV software.
• Netflix transitioned from a movie streaming company to a premium TV production house, funding House of Cards at approximately $5–$6 million per episode.
• Netflix's core product metrics are subscriber retention and streaming hours; these are highly correlated, driving design choices like the "Continue Watching" feature to minimize friction.
• Unlike traditional TV, Netflix utilizes data to commission content efficiently, though high-quality production still requires hundreds of millions in capital.

Technology Giants vs. Content Providers

• Strategic Divergence: Companies like Apple, Google, and Yahoo face a binary choice: become a full-fledged content producer (like Netflix) or use content as a "loss leader" to drive ecosystem sales (devices, groceries, ads).
• The "Kerosene" Analogy: Benedict Davins compares the TV industry to orbital mechanics; to achieve high-value content orbits, one must burn massive amounts of capital ("kerosene"), not just innovate with better engines.
• Acquisitions: Disney acquired Maker Studios (YouTube) for $500 million with an additional $450 million in performance goals to aggregate creator content. Yahoo recently announced plans to purchase rights to four TV shows to re-establish its media presence.
• Ecosystem Commoditization: TV distribution may follow the music industry's trajectory, becoming a generic commodity feature (like Spotify on phones) where switching costs vanish, rendering specific device ownership less critical.

Regulatory & Device Challenges

• A critical Supreme Court case involving Aereo (streaming live TV via individual antennas) is set to begin in two weeks, potentially determining the legality of "over-the-top" free transmission against traditional broadcasters (NFL, MLB, ABC).
• In the UK, where content availability on devices is unrestricted, "catch-up" viewing (e.g., BBC iPlayer) remains a small fraction of total viewing (750k streams vs. 25 million peak TV viewers), suggesting the problem is device experience rather than content access.
• The industry is adopting open protocols like "Dial" (Google/Netflix) and competing with Apple's AirPlay to enable seamless casting from phones/tablets to TVs.

Economic & Programming Implications of Unbundling

• The shift to on-demand and ad-supported models forces a re-evaluation of the "long tail," potentially reducing the viability of shows that only succeed due to linear scheduling lead-ins (the "Letterman vs. Leno" effect).
• Detailed viewership data will alter commissioning decisions, likely reducing the production of content that audiences do not actively choose to watch, even if it fills a time slot.
• The concept of "unbundling" extends beyond channels (ESPN, AMC) to individual shows, challenging the economics of producing content that currently relies on incidental viewing.